Step 1: Tools
Step 2: Anchor Down the Case
In truth i started out trying to just hold the case in one hand and the Dremel in the other. After realizing I didn't have Surgeon's hands I decided to clamp it down in something soft. If you don't have a rubber clamp, gripping it with a piece of scrap leather, or an old rag along with a metal clamp will work without scratching the case.
Then placed the clamp in a vice to keep it steady, allowing both hands to better control the Dremel.
Step 3: Bore Out the Hole
Slowly bore out and expand the space that the SoundClip will need to fit. Make sure to frequently check with the SoundClip if there is enough space... basically try not to take out too much. You'll want a comfortably snug fit for the glue to do it's magic.
As you get closer to the right size start taking the case out of the clamp and put it back on the iPhone. Try "inserting" the SoundClip to see which parts of the case still need a little cleaning-out.
Step 4: Glue It Together
From here on out the photos are reenactments, but still posted to help portray what I'm unable to describe.
Cut out some paper that will fit inbetween the case and the iPhone. and proceed to attach it along with the SoundClip as well. The SoundClip normally hangs on by sticking 2 prongs into the "socket" of the iPhone so go ahead and push those prongs through the paper.
The key here is to get it sitting as naturally as possible. Once glued, it will be permanent, and you don't want it to be crooked.
(Before Gluing, check the Tips and Warnings below)
Once ready, place glue in TINY amounts in the areas that the SoundClip is touching the Case. It's not shown but i used a toothpick to help with getting it in the small spaces.
WARNING Don't use too much! the paper will help keep the glue from touching the iPhone but it's not a guarantee! the brand i used bled through and still touched the phone, causing the previously mentioned permanent smudge
TIP If possible, glue only around the Cup of the SoundClip. I didn't realize until after it was all done, but leaving the "socket" part of the clip unglued allows it to flex when inserting/removing the case. Saves damage to the iPhone and/or the SoundClip down the road.
Step 5: Let It Dry
Once glued, let it dry.
When removing the paper there will be some sticking to the glue, but it is removable.
Personal Experience with the SoundClip:
It makes the volume only a little bit louder, but the bigger difference is in the clarity of the sound. It's a lot more crisp and clean when the clip is on.
I strongly recommend the SoundClip for anyone with an iPhone 3G.